The Real Reason Foundem Foundered

Summary

A pair of recent, long-form articles in the New York Times Magazine and Wired UK — the latest in a virtual journalistic cottage industry of such articles — chronicle the downfall of British price comparison site and stalwart Google provocateur, Foundem, and attribute its demise to anticompetitive behavior on the part of Google.

Unfortunately, the media’s hagiographies of Foundem and its founders, Shivaun and Adam Raff, approach the antitrust question as if it were imbued with the simple morality of a David vs. Goliath tale. The reality is far more complicated. In fact, these articles misunderstand and misstate the critical economic, business, and legal realities of Google Search, of Foundem’s claims of harm, and of the relationship between the two.

Was Foundem’s failure really the result of anticompetitive “gatekeeping” on Google’s part? Or could it simply be a pedestrian tale of yet another tech start-up that failed because its founders didn’t appreciate that a successful business is built on more than just a good idea?

While the import of the Foundem story has been misconstrued by journalists and EU regulators, it is useful in illuminating what may actually be the fundamental question regarding the antitrust fortunes of the platform economy:

What, if anything, does a successful platform “owe” to the companies that make themselves dependent upon it?

Related Resources

Amazon has largely avoided the crosshairs of antitrust enforcers to date (leaving aside the embarrassing dangerous threats of arbitrary enforcement by some US presidential candidates). The reasons seem obvious: in the US it handles a mere 5% of all retail sales (with lower shares in the EU), and it consistently provides access to a wide array of affordable goods.

How does a market’s structure affect innovation? This crucial question has occupied the world’s brightest economists for almost a century, from Schumpeter who found that monopoly was optimal, through Arrow who concluded that competitive market structures were key, to the endogenous growth scholars who empirically derived an inverted-U relationship between market concentration and innovation.